Time and investing are inextricably linked, as the time it takes for an investment directly effects your rate of return. And, Warren Buffett also sees time as both friend and foe for companies themselves.
“Time is the enemy of the poor business, and it’s the friend of the great business,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “I mean if you have a business that’s earning 20 or 25 percent on equity, and it does that for a long time, time is your friend. But time is your enemy if you have your money in a low-return business. And you may be lucky enough to pick the exact moment when it gets taken over by someone else. But we like to think when we buy a stock we’re going to own it for a very long time, and therefore we have to stay away from businesses that have low returns on equity.”
Buffett’s full explanation on companies with poor returns on equity
See the complete Lessons From Warren Buffett series
© 2021 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.